The contribution of the Australian live export industry

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The contribution of the Australian
live export industry to the Australian
red meat industries and the regions
ABARE-BRS Outlook 2001
Prepared by:
Derek Quirke
Centre for International Economics
2 March 2011
www.TheCIE.com.au
The contribution of live exports

Total export value averaged $1 billion
–

These exports provide significant flow-on
benefits to livestock producers
–

Between 2005-06 to 2008-09
And regional economies
Because of the costs of
–
Acquisition of livestock; and
– Their transport and preparation

2
Importantly, the live trade provides access to
alternative markets to processing chain
Key destinations…

Indonesia remains the most important market,
primarily for feeder steers
–
Accounting for 69% of total head exported
– The Philippines and Malaysia have declined as markets
as the result of competition from South American beef
and Indian Buffalo

Sheep exports have stabilised around core
markets including
–

3
Kuwait (25%), Saudi Arabia (24%) Bahrain and Jordan
Malaysia remains a key market for live goats
accounting for 82% of exports
The live trade has resulted in…

Productivity improvements in the northern
cattle at a much faster rate than the rest of
Australia

Increases in land values for both northern and
southern beef enterprises

A range of other regional benefits including:
–
Higher farm incomes than otherwise the case; and
– Reduction of risk through access to more markets
4
Purchases of livestock…

Exports of feeder or slaughter cattle and
sheep accounted for 90% of total
–

Over average 74% of the export value is the
purchase of livestock from saleyards or
directly off-farm
–

5
The remainder being goats, and breeding cattle and
sheep
In farm level GVP terms this is worth $742 million each
year
This doesn’t account for the flow-on to the
wider livestock industry
And where they are located

It is well known that the live trade is vital to
regional Australia

Live cattle particularly important to the
northern pastoral zone
–
Currently very limited processing facilities
– Transport south and east becoming more important
6

Live sheep purchased from southern WA
through to SA and Victoria

Dairy heifers important for Victoria – otherwise
would be slaughtered as calves
How the flow-on was calculated…

Its also widely acknowledged that farm gate
returns would be lower without the trade
–

By how much?
This requires estimation of the next best use
Returns ‘without’ the export trade
– This would be sales through the processing sector
– Many require additional transport and feeding
–

7
The difference between the ‘with’ and ‘without’
indicates the ‘value of the trade’
Additional transport costs and
slaughter capacity very important

Without the trade, an additional 520,000 cattle
would need to be transitioned for processing
–
Mainly east to Queensland from the NT; and
– South to Perth from NW Western Australia

Under current market conditions, sufficient
capacity exists for their processing

Therefore transport is the major cost
–
Accounting for an additional $80 million or
– Between 40 and 45 c/kg lw basis
8
…transport costs continued…

The major impact on sheep would be in WA
–

From 2006-09, 2.96 million older sheep would be
exported and 5 million sheep slaughtered each year
Around 80 per cent of exported sheep are
from WA
–
Without the trade potentially means a 60% increase in
sheep for slaughter
– With 20% or 1 million head excess slaughter capacity,

Around 2 million older sheep will need to be
transported east for processing
–
9
At an additional cost of $25 per head or $48 million
…using the GMI model

This impact was estimated using the MLA’s
Global Meat Industries (GMI) model
–
Of Australian meat production, consumption and trade
– Indentifies for 22 global regions and 8 types of livestock
and meat
– Including those important for live exports including
Indonesia and the Middle East

This impact was estimated by
–
Diverting these livestock back through the processing
sector; and by
– Recognition of additional transport and feeding required
to access processing markets
10
Impact on national prices…


Without the trade, saleyard prices would be
–
4% or 7.8 c/kg liveweight lower for grass fed cattle
–
7.6% or 12 c/kg liveweight lower for lambs
–
17.6% or 14.6c/kg liveweight lower for older sheep
Impacts on regions will be greater
Fall in farm gate returns
11
%
Ac/kg lw
Grass fed cattle
-4.0
-7.8
Grain fed cattle
-1.3
-3.2
Lamb
-7.6
-12.2
Mutton
-17.6
-14.6
… on production and exports…

Diversion through processing would result in
–
Beef production increasing by 5.1% or 109 kt cwe
– Sheepmeat production by 14.6% or 100 kt cwe

The majority of this production would end up
in price sensitive export markets
–
Including Japan, Korea and the United States
– Some to the Middle East and Indonesia

12
But this diversion drives export returns down
compared to the ‘without’ live exports case
… on industry GVP and incomes

Without the live trade: GVP would have been
–
2% or $176 million lower for beef
– 5.9% or $119 million lower for sheep

In value added or income terms this equates
to $126 million across the red meat chain

For other live exports: the contribution was
–
$34 million for live dairy heifers; and
– $4 million for the goat industry

13
Estimates used a conservative approach
The total contribution is significant

Between 2006-09 across all live exports the
contribution each year was
–
$248 million in GVP terms; and
– $110 million in value added or income terms

These impacts would be acute across
northern beef and the WA sheep industry

Results are lower than previous studies
because:
–
More conservative assumptions around transport
– Significantly higher sheep prices observed under current
market conditions
14
Key drivers of the results

Limited substitution between slaughter
animals and boxed meat in key live export
markets – each market has a range of
segments
–
Mainly due to cultural practices around fresh
consumption, acceptance of boxed product and end use
– Lack of other quality suppliers from other countries
– These factors could be changing slowly

The supply response of producers to lower
prices and higher transport costs
–
15
This extent of this response has been debated widely
Key drivers continued

Depends on scope to move out of livestock
into alternative enterprises
–
This is a critical issue for Northern beef which has
restructured itself around the live trade
– This is very limited in the short to medium term because
of lack of alternatives

Declining flock numbers in WA used as
rationale for declining importance of the trade
–
Sheep numbers have stabilised as a result of high
prices and diversification away from grains
– Continued role for sheep and live exports in WA
16
Bottom line on the contribution

The live export trade has made, and will
continue to make, a significant contribution to
–
The Australian red meat industry; and
– Regional economies

This continued contribution depends critically
on
–
Continued access to export markets
– The performance of the rest of the red meat chain
including processing which depends on exchange rate
levels
17
www.TheCIE.com.au
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